The fact that flotation costs can be significant is justification for:

Question

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Flotation costs are the costs associated with issuing new securities, such as underwriting fees, legal fees, and registration fees. These costs can be significant, especially for smaller issues. To minimize these costs, a firm might opt to maintain a low dividend policy and retain more earnings rather than issuing new shares to fund dividends. This approach reduces the frequency and necessity of going to the capital markets, thereby saving on flotation costs.

The Fact That Flotation Costs Can Be Significant Is Justification